Retailers Fight to Escape 'Conflict Minerals' Law

By

Jessica Holzer

Updated Dec. 2, 2010 12:01 am ET

Top U.S. retailers including
Wal-Mart Stores Inc.
WMT 0.44%
and
Target Corp.
TGT -0.87%
are battling to limit a new federal law that could force them to report whether their store-brand goods contain minerals from war-torn Central Africa.

The requirement, part of the Dodd-Frank financial law passed in July, aims to pressure companies to spurn so-called conflict minerals—tin, tantalum, tungsten or gold from parts of the Democratic Republic of Congo or neighboring countries.

Income from those minerals is blamed for fueling violence that has claimed millions of lives in eastern Congo, which a senior United Nations official recently branded the world's rape capital.

Under the new law, public companies using any of the four minerals from Central Africa must report what steps they have taken to verify the minerals weren't taxed or controlled by rebel groups. Products that don't contain minerals that benefited such groups can bear the label "DRC conflict free." Companies that fail to verify their sources can still sell their products, but could face embarrassment.

A broad array of U.S. companies, including makers of medical devices, cellphones, airplanes and machine tools, will be affected by the requirement because the minerals are in the products they manufacture.

Less clear is the status of retailers, such as Wal-Mart and Target, who carry private-label goods. The Securities and Exchange Commission has the power to decide who is considered a manufacturer under the law, and so must comply with it.

Some of the largest U.S. retailers argue they shouldn't have to comply with the rule if they don't exercise direct control over the manufacturing of goods carrying their own brands. The Retail Industry Leaders Association sent a letter making that case to the SEC.

Tracing the source of minerals is a tricky task, companies say, because many intermediaries stand between them and the mines. They add that control of territory and transit routes in eastern Congo is always in flux.

"I think a lot of companies will be challenged, at least early on, with indeterminate situations where they just don't know" the origin of their supplies, said
Mike Loch,
head of
Motorola Inc.
's supply-chain corporate responsibility program.

The reporting requirement, which had bipartisan backing in Congress, is an attempt to bring U.S. corporate pressure to bear on a bloody, 15-year conflict that foreign-policy critics say has received meager diplomatic and humanitarian attention from the West. Armed groups made roughly $185 million in 2008 from dealing in the four minerals named in the law, according to the Enough Project, a nonprofit group that lobbied for the requirement.

"There needs to be a jolt to that system," said
Sasha Lezhnev,
a consultant to the group.

Industry groups say the measure could backfire by forcing companies to halt all use of minerals from Central Africa, even ones untouched by armed groups.

"This is the only form of economic activity and subsistence for hundreds of thousands" of people, said
Rick Goss,
vice president of the Information Technology Industry Council, which represents high-tech companies. "The challenge is to allow our supply chains to continue sourcing from the region but to do it properly."

Sen.
Richard Durbin
(D., Ill.) and Rep.
Jim McDermott
(D., Wash.), two of the provision's authors , say retailers who contract for the manufacture of goods should comply with the requirement. Otherwise, "a large, nontransparent use of the black market for DRC conflict minerals would remain, directly subverting the policy intention of the law," they said in a recent letter to the SEC.

Target spokeswoman
Jessica Carlson
said her company "is committed to sourcing products which contain diamonds, gold, or other precious metals and gemstones only from vendors who engage in responsible mining practices."

Best Buy and Wal-Mart declined to comment. J.C. Penney and Costco didn't respond to requests for comment. A spokesman for Lowe's said her company is following the matter.

All four minerals affected, including small amounts of gold, are commonly used in electronic devices, such as laptops and DVD players.

The DRC accounts for about 15% to 20% of the world's tantalum and about 4% of its tin, according to high-tech industry estimates.

Companies fear gold would be the most difficult of the four minerals to trace because it is easy to smuggle.

A key issue is how the SEC will define what companies must do to verify their products are conflict-free.

The law's timeline is also a worry. Some companies must begin reporting by mid-2012 whether products they made during their 2011 fiscal year contained conflict minerals. They say that's too soon.

"Ford and a number of manufacturers are very concerned about being able to complete the due diligence in the time we have allowed," said
Monique Oxender,
who leads
Ford Motor Co.
F 0.43%
's supply-chain sustainability effort. A Ford spokesman said the company purchases $50 billion of goods and parts each year from about 1,600 suppliersto make its vehicles.

Tiffany Co.
TIF 1.73%
is seeking a waiver for fine jewelers, arguing that it is impossible for jewelers to know whether the gold bars they buy contain recycled gold tainted by conflict.

In a letter to the SEC, Tiffany said fine jewelers should only have to demand that their suppliers certify annually that they don't believe the gold they sold to the jeweler contained gold from the DRC or adjoining countries.

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